When the government announced yet another bailout for the power sector in September and said, as it had in the past, that this time around the SEBs would be forced to reform, few took it seriously. After all, with losses rising from R26,400 crore in FY09 to a projected R1,16,000 crore in FY13, getting states to hike tariffs by the required amount seemed impossible. Last year, however, several states shocked everyone by impossible hikes—37% in Tamil Nadu, 30% in Kerala, 18% in Uttar Pradesh, and so on. It is true, the hikes came after a long gap—Rajasthan’s 23% hike took place after 6 years, UP’s hike took place after 2 years—but at least they got done. Several states then agreed to sign on to the condition of the latest Financial Restructuring Plan (FRP) which, among other things, said that states would have to agree to eliminate the gap between their average cost of supply and average revenue realisation within a period of 3 years—the gap, which was around 22% in FY07, has risen to around 35% today. Given the rapid rise in costs, the gap will keep rising if tariffs don’t rise regularly.
But as elections draw near, states have begun to develop cold feet. One of the mandatory conditions of the FRP is “involvement of private sector in state distribution sector through franchise arrangements or any other mode of private participation to be prepared within a year by the Discoms”. That, of course, is bureaucratese for privatisation. As FE reported yesterday, UP is having second thoughts on privatising discoms in Ghaziabad, Meerut, Kanpur and Varanasi. After workers protested, the state’s principal secretary told them the state was appointing a technical advisor who would “merely give (his) opinion on the move to privatise distribution … in the state …” and that any decision on this would only be taken “after taking the power employees and the engineers in the sector into confidence”. In other words, it’s safe to assume a setback in the state’s plan to fix the ailing sector though, technically, the state has one year in which it has to come out with a plan.
In other cases, the power ministry has agreed to diluting some conditions—while one of the condition was to install pre-paid meters at the premises of all defaulters, the ministry has accepted the arguments of some states that they needed more time as such meters are not available. But why blame UP alone? The Union oil minister asked oil PSUs not to hike diesel prices by 45 paise during the run-up to the Karnataka elections and various state electricity regulators have recognised that there are R45,800 crore of “regulatory” assets—that’s jargon for money owed to discoms but which cannot be paid as it would mean raising tariffs. The government hopes that banks who will be granting a moratorium on repayments and who will restructure SEB loans will be proactive in ensuring the states cooperate and reform the sector—banks have shown in the past that they are not equal to the task.